Link’n Learn
Money Market Funds
International developments
Leading Business Advisors
Contacts
Paul Kraft
Partner– Audit
Deloitte US
E: [email protected]
T: +1 617 437 2175
Alan Cuddihy
Director – Audit
Deloitte Ireland
E: [email protected]
T: +353 1 417 2444
Aisling Costello
Senior Manager – Investment Management Advisory
Deloitte & Touche Ireland
E: [email protected]
T: +353 1 417 2834
Brian Jackson
Partner – Investment Management
Deloitte & Touche Ireland
E: [email protected]
T: +353 1 417 2975
Agenda
CNAV funds
Directors’ responsibilities
Diversification & concentration
Stress testing & credit assessment
Valuation
Authorisation
External support
Transparency
Money market funds
Directors’
responsibilities
Valuation of
securities
Stress testing
Key
features
Fees and gates
Timelines
4
Link’n Learn – Money Market Funds: International Developments
Diversification
Transparency
© 2015 Deloitte & Touche
Valuation of securities
amortised cost allowed?
US
EU
 Constant NAV funds maintain a steady NAV of either
€1, $1 or a £1 and may use ‘amortized cost’ accounting
to value their securities . Other MMFs must use mark
to market or mark to model.
Stable NAV funds maintain a steady NAV of $1, and use
‘amortized cost’ accounting to value their securities
Amortized cost can be used for:
 securities with maturities of less than 60 days
 Government money market funds
 Retail money market funds
Government money market funds
 Must invest at least 99.5% of its total assets in cash,
government securities or repos collateralized by cash or
government securities
Retail money market funds
 Must be limited to ‘natural persons’.
 Omnibus accounts may qualify, if limited to natural
persons.
Determine whether amortized cost represents fair value each
time the fund makes a valuation determination. This must be
based on real data about actual market conditions such as
credit, liquidity, or interest rate conditions in the relevant
markets, as well as issuer-specific circumstances
5
Link’n Learn – Money Market Funds: International Developments
 Constant NAV funds are available only to ‘small
professional’ investors with a proven track record of
not reacting instantly to a decline in the NAV of a fund.
Directors
Responsibilities
 Must be short term MMFs (ie invests in money market
instruments which can invest in similar securities as
UCITS funds and which has either a legal maturity of
397 days or less; a residual maturity of 397 days or
less; or the issuer has been awarded one of the two
highest internal grades.)
 The difference between the constant NAV per
unit/share and the NAV per unit/share must be
continuously monitored.
 The NAV must be calculated at least daily
© 2015 Deloitte & Touche
Fees and gates
Board action – US
Allowed to establish a liquidity
fee of up to 2% and/or
Triggering event
Weekly liquid assets* fall
below 30% of total assets
Allowed to suspend redemptions
(i.e., establish a “gate”) for up to
10 business days within a 90 day
period
Required to establish a liquidity
fee of 1%, unless the board
determines it is not in the best
interest of the Fund to do so
Required to lift fees and gates of
total assets
n/a
Board action - EU
Allowed to establish a liquidity fees of up to
2% ; and/or
Allowed to establish a redemption gate
where up to 10% of units in the CNAV can
be redeemed on any one dealing day for up
to 15 dealing days; or
Allowed to suspend redemptions for up to
15 days; or
Allowed to take appropriate action to
protect shareholders.
Weekly liquid assets* fall
below 10% of total assets
Required to impose liquidity fees of
between 1% and 2%, or suspend
redemptions for up to 15 days.
Weekly liquid assets* rise to
30% or greater
n/a
When aggregated
suspensions exceed 15 days
within 90 days
The CNAV automatically ceases to be a
CNAV MMF and is prohibited from using the
amortized cost or rounding method.
*“Weekly liquid assets” in the US generally include cash, direct obligations of the U.S. government, securities that will mature
or are subject to a demand feature that is exercisable and payable within five business days. In the EU, these include cash
and securities with maturities of one day or one week.
6
Link’n Learn – Money Market Funds: International Developments
© 2015 Deloitte & Touche
Diversification
US
EU
 Aggregate affiliates for measuring diversification
 Treat certain affiliated entities as single issuers when
measuring compliance with 5% diversification test
 MM instruments issued by the same body - Standard
MMFs capped at investing 10% of its assets, short
term MMFs are subject to a 5% cap.
 Affiliated entities are defined by “control” concept (50%
ownership test)
 Deposits with the same credit institution – both capped
at investing 10% of their assets
 Amended diversification rules exclude certain majority
equity owners of asset backed commercial paper (ABCP
conduits from the requirement to aggregate affiliates for
this purpose
 Exposures to securitisations – capped at 15% of the
assets in aggregate
 MMFs require MMFs to treat sponsors of asset-backed
securities (ABS) as guarantors subject to the 10%
diversification limits to guarantees and demand features,
unless the board determines otherwise
 Elimination of 25% basket for portfolio securities subject to
guarantees or demand features from single institution
 Reduction to 15% (rather than elimination of 25% basket)
for tax-exempt MMFs, including single state MMFs, of
portfolio securities subject to guarantees or demand
features from a single institution
Directors
Responsibilities
 Aggregate value of assets transferred by the MMF
under repurchase agreements – 10% of the MMFs
assets
 Aggregate risk exposure to the same counterparty of
the MMF stemming from OTC derivative transactions –
capped at 5% of the MMFs assets
 Aggregate cash provided to the same counterparty of a
MMF in reverse repurchase agreements – capped at
20% of assets
 MMFs must not combine investments which would
result in an investment in one body of more than 15%
of the MMFs assets.
 Local regulators can authorise MMFs to invest 100% of
its assets in different MFFS issued by Central, regional
or local authorities or central banks in certain cases.
7
Link’n Learn – Money Market Funds: International Developments
© 2015 Deloitte & Touche
Transparency
US
EU
Websites
MMFs must supplement the existing disclosure
requirements in AIFMD and UCITS with the following
transparency disclosures:
 daily levels of daily and weekly liquid assets
 Net shareholder inflows and outflows
 Whether they are short-term or standard MMFs;
 market-based NAVs using basis point rounding
 Whether they are CNAV MMFs;
 6 months of historical data
Form N-CR
 disclose within one business day of triggering event
(Follow-up filing with more detail within four business
days)
Form N-MFP
 Amendments to Form N-MFP new require risk
assessment reporting
 Public disclosure is immediate upon filing
Form PF
 Registered advisers with $1 billion or more in MMF and
liquidity fund assets held in private funds must file
quarterly reports with the same information that MMFs
must file on Form N-MFP
8
Link’n Learn – Money Market Funds: International Developments
 That an MMF is not a guaranteed investment;
Directors
Responsibilities
 That an MMF does not rely on external support for
guaranteeing the liquidity of the MMF or stabilising the
NAV per unit or share;
 That the risk of loss of the principal has to be borne by
an investor;
 The method used by an MMF to value the assets of an
MMF and calculate the NAV
Regulatory reporting
Each MMF manager must report, at least quarterly, to the
MMF’s competent authority on matters such as the type
and characteristics of the MMF, the results of stress tests,
the shadow price, information both on the assets within
the MMF’s portfolio and on the MMF’s liabilities.
© 2015 Deloitte & Touche
Stress testing
US
EU
 MMFs must periodically test ability maintain weekly
liquid assets of at least 10% and to minimize volatility
in response to hypothetical events including
 MMF managers must establish and apply several
internal policies, including an assessment procedure
to determine the credit quality of money market
instruments and a “know your customer” policy
which aims to correctly anticipate the effect of
concurrent redemptions by several investors
 Increases in the level of short-term interest
rates
 The downgrade or default of particular
portfolio security positions
 The widening of spreads in various sectors to
which the MMF’s portfolio is exposed
 Testing must be addressed in combination with
various increases in shareholder redemptions
Directors
Responsibilities
 There are certain stress testing processes which
MMF managers should have in place, including:
 analyses on hypothetical changes in the level
of liquidity
 credit risk
 interest rate changes
 MMF advisers must report the results of stress
testing to the board, including information as may be
reasonably necessary for the board to evaluate the
stress testing results
9
Link’n Learn – Money Market Funds: International Developments
 Redemptions
 Managers of MMF with less than EUR500M in
assets can apply the policies in a proportionate
manner
© 2015 Deloitte & Touche
Timelines
European Timeline
Jul ‘12
Feb ‘12
Sep ‘13
European
Commission
consults on
potential UCITS
measures as part
of ‘UCITS VI’
ESMA updates
its Q&A on
common
definition of
EU MMF
Feb ‘15
European
Commission
proposes
Regulation on
MMF
Apr ‘15
Council of the EU
compromise
proposal on MMF
Regulation
European
Parliament to
consider
proposed MMF
Regulation in
plenary session
Directors
Responsibilities
US Timeline
14 Oct ‘14
The SEC’s revised
rules became
effective 60 days
after their
publication in the
Federal Register
10
Link’n Learn – Money Market Funds: International Developments
14 Jul ‘15
compliance
with the new
Form
N-CR
14 Apr ‘16
compliance with
new rules on
diversification,
stress testing,
disclosure, Form
PF and Form NMFP
14 Oct ‘16
compliance with
new rules on
floating NAV,
fees and gates
© 2015 Deloitte & Touche
Additional features
Authorisation
External support
Customer profiling
policies
Restricted investments
Credit ratings
Eligible assets
11
Link’n Learn – Money Market Funds: International Developments
© 2015 Deloitte & Touche
Q&A
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a private company limited by guarantee, and its network of member firms, each of which is a legally separate
and independent entity. Please see www.deloitte.com/ie/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
With nearly 2,000 people in Ireland, Deloitte provide audit, tax, consulting, and corporate finance to public and private clients spanning multiple industries. With a globally
connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to
address their most complex business challenges. With over 210,000 professionals globally, Deloitte is committed to becoming the standard of excellence.
This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, Deloitte Global Services Limited, Deloitte Global Services Holdings Limited, the
Deloitte Touche Tohmatsu Verein, any of their member firms, or any of the foregoing’s affiliates (collectively the “Deloitte Network”) are, by means of this publication, rendering
accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor
should it be used as a basis for any decision or action that may affect your finances or your business. Before making any decision or taking any action that may affect your
finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any
person who relies on this publication.
© 2015 Deloitte & Touche. All rights reserved